Dubai Court of Cassation Judgment: Piercing the Corporate Veil for Managerial Misconduct
Dispute Resolution / UAE
Mohamed Abou SakrSenior Counsel,Dispute Resolution
Dina Assar Knowledge Lawyer,Dispute Resolution
Al Tamimi & Company successfully represented the Claimant in a recent Dubai Court of Cassation ruling dated 11 February 2025, that underscored the personal liability of managers in limited liability companies (LLCs) and assessed the circumstances where the corporate veil may be pierced. The Court held the manager of the LLC personally liable (i.e., the corporate veil was pierced) due to their breach of legal and contractual obligations, misappropriation of company funds, and failure to fulfil their managerial duties, causing direct harm to the Claimant.
This article examines the UAE courts' approach to limited liability companies, focusing on the scope of liability protection afforded to members. It also explores the circumstances under which courts may pierce the corporate veil, holding members personally liable for the company’s breaches.
Pursuant to Article 84 of the Commercial Companies Law, directors of a limited liability company (LLC) are personally liable to the company, its partners, and third parties for (i) fraudulent acts, (ii) misuse of authority, (iii) violations of applicable laws or the company’s articles of association, (iv) breaches of their appointment contract, or (v) gross negligence, and shall be obligated to compensate all resulting damages. Any contractual or statutory provision attempting to exempt directors from such liability is deemed null and void, thereby safeguarding against the circumvention of fiduciary duties and ensuring rigorous accountability for corporate governance failures.
The dispute arose from a commercial relationship involving a contract for yacht renovation. The Respondent, an LLC, materially breached its contractual obligations by delaying execution and violating agreed specifications. These breaches required remedial works by a third party. The Respondent failed to complete the agreed yacht repairs despite receiving full payments. The Claimant initiated arbitration proceedings before the DIFC Arbitration Center and obtained an award of AED 3,157,062.19. However, during enforcement proceedings, the Claimant discovered that the Respondent had no assets, as its manager and partners had depleted its funds. Subsequently, the Claimant filed a civil lawsuit before the Dubai Courts against the Respondent, its shareholders, and the manager (“Manager”) seeking personal liability.
The Court of First Instance declined jurisdiction and referred the case to an appointed expert. After reviewing the expert report, the court ordered the Manager to pay the claimed amount along with 9% legal interest from the date of finality.
Both the Claimant and the Respondent appealed. The Court of Appeal consolidated the appeals and upheld the lower court’s decision on 24 November 2021. The Manager then challenged this outcome before the Court of Cassation, which overturned the judgment on 2 November 2022 and remanded the case to the Court of Appeal for further consideration.
On remand, the Court of Appeal issued a new judgment on 27 March 2023, overturning the previous ruling and dismissing the case in its entirety, leading to the present Cassation Judgment.
The Court of Cassation appointed an expert who found that the Manager had failed to maintain proper accounting records for the Respondent, a serious violation of the Commercial Companies Law.
Furthermore, it was found that withdrawals from the company’s account occurred before the issuance of the arbitration award. The Court of Cassation reaffirmed that the Manager of LLC bears liability not only to the company itself but also to its partners and third parties. This liability encompasses management errors, negligence, fraud, abuse of authority, and violations of the law or the company’s articles of association.
The Court of Cassation referenced Articles 282 and 292 of the Federal Civil Transactions Law, which establish liability for harm caused by either an action or an omission. These articles set forth that those who act in a fraudulent manner must compensate for any resulting damages.
The Court of Cassation added that liability for harmful acts requires three elements: the harmful act, the damage, and causation. The harmful act alone does not suffice. It must cause recognizable harm within the liability scope. This requires proof for compensation proportionate to damage where causation exists. The trial court must verify these elements independently when supported by valid reasoning from case facts.
In this case, the expert’s report confirmed that the Manager had failed to fulfil their managerial duties. Their mismanagement directly harmed the Claimant by obstructing the tracking of assets necessary for enforcing the arbitral award against the Company. As a result, the Court established the Manager’s liability and ordered them to compensate the Claimant.
The Court identified several critical failures by the manager that justified piercing the corporate veil and imposing personal liability:
The serious violations by the Manager was demonstrated by the company’s failure to maintain regular commercial books or statutory financial statements; The Manager of the LLC failed to maintain proper accounting records and statutory financial statements. This lack of proper record-keeping is a serious violation of the Commercial Companies Law, which mandates that companies maintain accurate and up-to-date financial records.
There was a lack of financial independence between the company’s assets and those of the partners;
There was an absence of audited financial statements since 2016 which is in clear violation of Article 26 of the Commercial Companies Law;
The Manager deviated from his responsibilities and obligations imposed on him by law and proved his bad faith and premeditated plan to conceal any evidence of the company’s profits and revenues; and
The Manager’s aim was to divert company funds and obstruct the enforcement of the arbitration award
This judgment is particularly significant as it reinforces the UAE Court’s commitment to holding managers of Limited Liability Companies personally accountable for their actions. It also underpins the court’s role in preventing the misuse of power by company executives. In this case, the court found the manager personally liable for damages resulting from his professional negligence and misconduct, and breach of managerial duties under the Commercial Companies Law, ordering him to compensate the affected party. This decision highlights the crucial responsibility of managers to act with integrity and diligence to avoid situations that could lead to piercing the corporate veil.
For further information,please contact Mohamed Abou Sakr and Dina Assar.
Published in September 2025
